Legal Question in Real Estate Law in California

As the buyer you can't record a mortgage on the property. What you are proposing to do is what is called an all inclusive deed of trust. This is very risky, because you cannot receive title to the property without it being an event of default as to the first mortgage if they find out, and they are monitoring title these days pretty well. A lease option might be an alternative, but again you are at risk of the seller's default. There really is no way for a person to safely take title from a mortgaged seller who is not going to pay off his mortgage as part of the sale. You will always either be at risk of the lender declaring a default if you take title immediately, or at risk of the seller defaulting on payments if you don't take title immediately. In addtion, even if you take title later and make the payments directly, without holding record title if the seller is crooked enough he can sell it to someone else.

Qualified buyers can obtain such favorable terms on new loans these days there is little incentive to assume indirect responsibility for someone else's less-favorable mortgage and a pile of risk as well. I'd advise laying off on this proposed deal and doing a plain vanilla transaction where the existing loan disappears and you get clean record title. Too many of these innovative deals using unrecorded transfers and assumptions end up in court.

If the existing deed of trust is not paid off during escrow when you purchase, you will be subject to the deed of trust. If you assumed the first, with the lender's permission, you might have some protection, but in that situation, you would want to seriously negotiate the second to be a lot lower. If you do not assume the first, or the lender does not approve, you would still be subject to the deed of trust. If you took title immediately, you may trigger the existing "due on sale" clause which most likely exists in the first deed of trust. This could result in foreclosure, and you would not be protected from losing your home, which would be at the whim of the lender on the first and the person you bought the home from.

If the second is seller financed, it falls squarely in the purchase money mortgage anti-deficiency of Code of Civil Procedure section 580b.